Huge Options Trading Blunders: I made 1000% return on an out of the money call! (episode 3) 

I love this!

What if I buy an option for 1 month out. Let's say stock price is $100 and strike price is $107 4 weeks out. On the first day price goes to $104 and the option price tripled is it bad to get out early and out of the money? Let's say I'm not confident it will ever hit $107 and just want to exit early. Is there ever a time this is profitable even out of the money? Serious question from a rookie.

⁠@@realMDizzy You have to pay attention to what’s going on every day. There may be a reversal signal on the chart. The fed might put out out a statement and tank or spike the whole market. It’s all basically a judgment call on your part. Like right now, with this debt ceiling crap going on it’s impossible to look 2 days into the future because you don’t know what these political numb nuts are gonna do. Two days ago it looked like it had a good chance to get settled, the market was in a bullish mood. Yesterday the negotiations blew up and the market went down with the ship. There’s no shame in taking a profit of any kind. Youve got to learn to trust your instincts, if something doesn’t smell right it’s probably because it’s not. I took a small profit on a overnight play yesterday. At the opening bell everything went stagnant. I hung on for about 15 minutes then got out. It turned out to be the right move. It may spike up Monday morning but under the current circumstances, I wasn’t willing to take that risk. It’s about sticking to your plan and your rules. On that particular trade I was only playing for an overnight, not a week long ordeal, I was getting out in the morning win or lose. I stuck to my plan. I think that’s where most people get in trouble. They change what they’re doing in the middle of the trade and forget or abandon the reason they got in it in the first place. Be patient. I think it’s best at the beginning to take one or a small handful of stocks or pairs or whatever you’re trading and watch how their charts behave. I get in trouble when I hear some news blurb and jump into something Im not familiar with. I don’t do that often, but when I do it doesn’t end well.

@@realMDizzy Look at rule #2, if you're made a comfortable profit on the option, sell the option and get out. You could sit there all day running "what-if" scenarios. "What if the price does go to $107 and I could have made more money?", if that was the philosophy then no one would ever sell any of their positions.

Superb. I am seeing myself in mirror

Yeah...this guy is an insurance salesman. His idea of good trading is collecting premium. The authority he's speaking with is extremely biased

Exactly I panicked when the market was crashing and all my calls were in bleeding red. I made most of my money back with some patience as I was firm with my initial bullish assumption. OTM options only. 😊😊😊. Easily over 100% gains.

Yep, I do it everyday! Lol

Depends when it expires and when you bought it and for how much. An ITM call with have intrinsic value. You would have made more.

@@celiner5595 so over night my otm goes up 2700% still otm I’m lost should I sale r keep

lucky on that ;)

I think it depends; yes it’s common for an option to be worth somewhat more than bought it for at some point before expiring. Sometimes way more, sometimes like 10% more at most. Other times, the value just drops. It depends on how the stock moves; how far out the expiration is, how far OTM, whether IV is going up or down… If the stock only goes down or stays flat, what then? Maybe you sell while there is still time value. A very short-term option loses value quickly. But a long-term far OTM option is not very sensitive to movement of the underlying, right? I find myself looking for “cheap” calls that are not too far out of the money and expire at least a few weeks out.

That’s the whole point of trading. If you buy something at $1.00 and the bid goes up to $1.10, you just made a 10% profit. I may be mistaken but isn’t that higher than the current interest rate? So what’s the problem? Yeah, it would be nice to make 1000% on every trade but that ain’t gonna happen. Don’t get me wrong, Im not disagreeing with you. Yeah OTM’s are risky, but so is everything else. Ive watched charts with multiple time frames crossing the 200 ma blow up in people’s faces in less than 24 hours. Nothing is guaranteed in trading or in life. Take what you can get when you can get it because if you hesitate it may no longer be available.

@@floydsmithjr7999 Yea, but if you buy an OTM Leap Option you have a much longer time for that stock to hit its price especially in a new bull market.

@@davidg11235 If that was the rule of thumb dude then there'd be no existing ODTE Options Wealth Opportunity !! End Of Story 🤨

Say your option goes from 100 to 110 and you have broker fees 5$ buy and 5$ sell you are at 0. If volatility falls it stays flat then you -20% constantly

True, but with time working against you, you could see your options deteriorate in value every day even with a mild daily rally.

@@sethfreudberg4750 would you say this is more applicable to short-term calls versus long term? Is it less likely that the calculation of the delta on a long OTM call is accurate? What is the downside of purchasing a cheap 6month - 2yr OTM Call on a company that you are long-term bullish on (Boeing for example)? The time decay should be pretty low and if the stock has an 3-4 day rally within that time period, you can usually sell for 3-5x profit moths before expiration.

The 90% is also skewed by historical data. During the volitility of this past 5 months "lotto tickets" have had a much higher chance of hitting. The volitility will cool. But an example where the opportunist can profit off an obvious momentum move like we've seen in SPX during early June 20

John-Stephen Byerley you used call or put ?

Winner of a video, I been tryin to find out about "martingale system calculator" for a while now, and I think this has helped. Have you ever come across - Aonyanaler Bewildering Asset - (Have a quick look on google cant remember the place now ) ? It is a great exclusive guide for discovering how to making money with a proven roulette system without the headache. Ive heard some unbelievable things about it and my partner got excellent results with it.

Exactly. hes saying expires worth anything at all. Who the fuck is going to hold till expiry?

@@jakobfolmar6604 um.... when you sell an option back, who TF do you think is giving you the money? You should be thankful people hold them to expiration. 🤣 Also you need a person on the other end. Your broker and the clearing house do take care of this for you. But in an extreme case, nobody will be willing to buy your option back (or sell them to you) and yes, you will hold it to expiration.

@@JonValtandtheEvilRobots um maybe the shit stocks you trade. Not SPY FB AAPL AMD MU Ect ect.

@@jakobfolmar6604 Glad you found those unicorn stocks where you go to a "market" yet buy and sell with no one. 🤣 For every buyer, there is a seller. For every seller, there is a buyer. This isn't a video game. :-)

@@JonValtandtheEvilRobots Dude do you think I'm not aware of buyers and sellers? I'm saying I trade super liquid stocks and market in and out of options in a second with no slippage. No shit when I sell someone buys the difference is I'm not buying and selling shit penny stocks.

But you'd also have made tons with itm

You mean as the buyer you wouldnt?

Id NEVER let it expire. Ever

You could, but you’d want to at least take enough profits to cover the initial trade IMO. It is possible the stock keeps rising fast enough that it expires in the money.

Still a bad bet because the option premium can decay faster than the increase in the stock price. A far out of the money option has very low delta, the stock has to move A LOT and very fast before the option appreciates in value. You have much better odds with near or at the money options, albeit with higher capital commitment.

Check the Implied Volatility. It probably increased. The "extrinsic" value of the option heavily depends on it.

Every on of their videos have the same shill at the beginning

Well if you've never had an option lose money immediately or a few days after buying it than I do not know what reality you're a part of but I want to go there.

Juliao Martin okay and? It all fluctuates. Until you close it out it didn’t lose anything. I’ve had options drop after purchasing and then made profit after closing them out a month in prior to expiration. That’s called management.

Have to agree... I understand why a prop desk trader wouldn’t swing trade or scalp options because of scaling issues and the need for intense monitoring, but the video doesn’t acknowledge that you can sell before expiration at all.

We appreciate that

You could, but will you? Many people don't because they hold out for bigger gains. It's easy to say "I'll just sell for gains" now, but when you're seeing that green number shoot up rapidly, are you absolutely positive you won't let greed get to you by holding for more?

@@ZhangtheGreat that's fair analysis, there's a similar but slightly lower risk with stocks as well.

Can you list some stocks lol

@@jaynova3905 it was MARA and Riot when they were 2 and 3 dollars respectively in november last year before btc broke above 20k. once in a lifetime play right there lol

well done! i think it is smart to keep an open mind: saying, like Seth says, "never buy otm calls" is like denying that in your toolbox you have screwdrivers as well as many other tools that, at the right time, are of GREAT value. It boils down to MINDSET. It is never "either this strategy or that other one". In my world it is always "both strategies", if understood and played at the right time. So, well done to you licensetocole

@Lalchhanchhuaha Hmar For that one, I probably bought an option expiring the following day (expecting a huge drop per technical analysis which happened). Options are super cheap when expiring 1-2 day later, even more on low volatility. I have made awesome returns few times but overall lost way more trying to replicate with higher bets. Buying both side (calls and puts) would probably have prevented those losses and offer great return 70-80% of the time but never did. Playing a tiny portion of port (1% or less) both ways when stock consolidation is due for breakout (or once confirmed) should pay off over time (with TA skills)

Delta can also be correlated to standard deviation.. a 16 delta which is one standard deviation away from the current value.. understanding delta, stand deviation takes understanding beyond what the underlying meaning of the greeks

Delta and Gamma changes with the every $1 change in price of share. Theta time dependent (decay/changes every day). Theta depends on Implied Volatility. Roho interest rate (doesn’t have that much impact on it)

@@Mellowyellow8888 is there formula to calculate it?

@@Mellowyellow8888 is there somewhere i can read about delta and standard deviation? meaning is the ratio always correlated that 16 delta = 1 standard devaition on all underlyings?

@Lalchhanchhuaha Hmar yeah, day trading weeklies is a bit different than what he's suggesting haha

Ouch

@@ramiq7932 look at the date i posted it...i sold a few days later when we hit 38 a share =) i still have 100 leap calls on XOM exp dec 2022

i murdered XOM....flex time!!!!

Exactly if the premium doubles or triples, you can close the trade with a 2-3x profit. I’m doing that right now on Riot blockchain

so basically if you hit your call and your option expires you make money?? cause I did hit the call but I also sold it at that moment lol because I saw profit and I was like sweet I put 125$ and made about 68$ or something if I was holding it would the rewards be greater after it expired???

Bill Khan 👆🏼

@@Ukacip I dont really know the answer to this question for im still knew to trading but one thing i do know is its never wrong to take profits haha so God bless and LETS MAKE THIS MONEY!!

What if you go long 60-90 days and stock moves up significantly?

Or are u blinking at the exact same time🤔

Thanks Daniel

Possible during these times

@terry k that would be called the Delta.

@@YS-zk4wz Right YS.

Yes, but there are more nuances than just the probabilities.

For every option strike in the option chain, alongside things like bid, offer, volume and open interest, you should be able to see a Probability of Expiring ITM or a Probability of Expiring OTM. P(ITM) is a roughly similar number to Delta. Buying a 10% P(ITM) or 0.1 Delta option is indeed a longshot. Strictly a "Probability of Profit" on any proposed trade is a more complicated concept.

5000% is like 100grams of coke

Cheap is cheap when it comes to options trading, and most other things....

That's a conclusion that most options income traders were reach Simon :)

@@sethfreudberg4750 Isn't that the picking up pennies/dimes/quarters in front of a steam roller trade?

Sixter selling a 10 delta naked calls without any kind of hedging is a sure way to destroy one account on a 2+ SD move

Pascal Houde if you sold puts then you could at least buy the underlying a lot cheaper to cover

@@simonjohnson1381 Selling puts has a different outcome if you get assigned. If you intend to own the underlying then it is a good way to get it cheaper. If your intention is only to get the premium then the risk of getting assigned should be evaluated at the time the put is sold.

The good guys :)

Not true. You click on the option and act as if you’re going to buy the contract. When they ask how many contracts you want to purchase, you can then click on highlighted bid price and scroll down. There, you’ll find the Greeks. You aren’t obligated to buy the contract to see the greeks. Hopes this helps you. HNY

@@edadedeji6490 thank you

The answer is yes

Moderna IBM AMC GME yes

thx Raf!

I meant risk reversal

You have to live to trade another day.

we do it all the time

Yep - long LEAPs and short strangles or iron condors around the core position. Rinse and repeat every 20 days or so. Hold the long LEAPs for long term capital gains treatment - DONE - millions.

They are pretty close over time if you do a backtest Dimitri. They are statistically based.

Makes sense, thanks. What I'm struggling with is that calling them (those delta calculations) "probabilities" seems wrong. The future probabilities are unknowable, they cannot be inferred from prior knowledge or observations. It's not like rolling a die where you know there is a 1/6 probability to roll a 6. These are a different animal, they come with a very shaky assumption that some quantity observed in the past (whatever statistic is being observed) will remain unaltered in the future. But that's mere speculation, nobody can know if this will hold true or not.

You have a point. Delta is not a prediction. It's only a statistical probability based on today's stock prices and volatility levels and the time remaining to expiry. As soon as you introduce an underlying trend that you believe can persist non-randomly or a strong conviction that prices or vols will deviate, then your prediction will not match delta. However, a 10% statistical estimate of something coming in-the-money is probably still a huge longshot unless you know something wild that the market does not.

Well an example would be seeing every FAANG stock hit ATH during a global pandemic, massive civil unrest, and financial instability. At that precise timing, it would be reasonable to assume the 90% statistic may not hold true. And last week on 10-12 June. It wasn't 90% chance in reality. I certainty won't question the accumulated experience held by this trader. But the exception to the rule is worth mentioning.

@@sethfreudberg4750 Yeah it’s maddening how close they are. I’m working on a theory right now that seems to work for the past year but I need to work through the previous 10 years’ data because I trust the algorithm over my own judgment. Given that math/engineering PhDs developed/maintain it that’s the best default position to have.

No, not wrong. But.....Delta is also a close approximation to the probability of the underlying reaching that strike price. eg. a delta = 0.1 (or -0.1) has a roughly 10% chance of reaching that strike at or before expiry.

@@shadmo8629 OK, thanks.

thanks Razzy

yes, that's what I do for cheap otm options. Theta decay ramps up exponentially in the last month of the options life, so if you're playing an otm option on a binary event (like earnings) it's better to buy the option a month past the earnings date. it's also a great reason to sell weekly otm options because the theta decay is immense

Or buying an otm call with the iv run up into earnings...

Levi Messner buying an OTM call up to earnings thinking you will make money is a myth. There is no free lunch in the option market.

Pascal Houde so I’m assuming that selling premium right before earnings is a myth too?

@@Deucenheimer Many retail traders do it so this concept is not a myth :) You can be successful selling naked put or call until you are struck by lightning with a 2+ SD move. You can cap your risk by buying protection wings. Are you selling premium around earnings? If so what is your strategy? Have you done back testing? Just curious... Cheers

Interesting idea Java, we can take a look at that.

@@sethfreudberg4750 Again, the further out the call, the likelihood that the deltas are accurate, seems much lower.

With leap options time is not on your side. Any option with a time premium eventually sheds all of that time premium.

@@sethfreudberg4750 what about the Zero Extrinsic Back Ratio spread? Extrinsic Value is close to 0 and the delta is close to 100

Use the CC (closed caption) feature that RU-vid has, they translate all the videos!